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    Klaipeda LNG: Great But No “Silver Bullet”



If the price of LNG is higher than Russian gas, then the Baltic states will buy Russian gas, says Latvia's Deputy State Secretary of Ministry of Economics

by: Drew S. Leifheit

Posted in:

Liquefied Natural Gas (LNG), Top Stories, Pipelines, Gas Interconnection Poland–Lithuania (GIPL), Lithuania, Estonia, Latvia, Baltic Focus

Klaipeda LNG: Great But No “Silver Bullet”

While there are steps that need to be taken to export LNG in the Baltic states, Lithuania's Vice-Minister of Energy Aleksandras Spruogis contends that since the dawn of the LNG terminal at Klaipeda the security of his country's gas supply has changed dramatically. While it can cover the gas needs of 80% of consumers in the Baltic states, he said it's no “silver bullet.” He commented, “Without other infrastructure, it cannot change the game in the region.”

An entire package of connected infrastructure projects is needed, he said, looking from north to south, including Balticonnector with Estonia's underground storage, Gas Interconnector Poland-Lithuania (GIPL), the Polish LNG terminal Świnoujście, and Klaipeda.

Mr. Spruogis made his remarks at an event organized by Natural Gas Europe and Geopolitika on November 11 in the European Parliament in Brussels, part of the Interconnecting Europe series.

He admitted that LNG in Europe is underused, something which could be alleviated by removing regional barriers, evaluating demand, removing bottlenecks and developing small-scale LNG.

Lithuanian MEP Antanas Guoga, who moderated the event, noted that prior to Klaipeda the country had not been competitive, suffering the highest prices for gas and electricity. “It's taken too long,” he said of the arrival of LNG, “but in the future we can't let politicians make bad decisions that are favorable for monopolies.”

According to Mr. Guoga, the U.S. has the biggest potential to provide the Baltic states with liquefied natural gas (LNG). He asked Ms. Monika Zsigri, Policy Officer, Security of Supply, DG Energy, to speak about the European Commission's overall commitment to connecting the region vis a vis natural gas.

Noting that interconnecting gas markets has always been easier, with GIPL as an example, receiving co-financing, Ms. Zsigri observed: “That project is on its way, so the isolation of the Baltic states from the rest of Europe in terms of gas will end in the coming years."

LNG, she said, is a tough sell, but can be implemented quickly and provides access to global markets. Lithuania, she recalled, had gone ahead with its project in Klaipeda. “The result of that very bold step is that now we have the Baltic states with an alternative supply source. Lithuania has managed to get the price of gas to a level which is competitive with the rest of Europe, and the project then looks to be paying for itself,” she explained.

“Of course having an LNG terminal is still not sufficient if you cannot use it on a regional basis, fully exploiting it by having free access to the entire infrastructure set that exists in the Baltic states.”

The Baltic Energy Market and Interconnection Plan (“BEMIP”), she said, is undergoing reform in order to translate such elements into action to facilitate use of the LNG terminal and missing infrastructure is implemented, helping the region considerably from a security of supply point of view.

She said: “Access to LNG, to the global LNG market, is not just a question of security of supply, but also competitiveness, especially considering that in the next 5-6 years we see that LNG will grow on the producers' side, which means that on the demand side there will be more of a 'buyers' market'.”

The European Commission is also working on the LNG and Storage Strategy, according to her, which should reflect the situation of the Baltics.

Mr. Kalle Palling, Chairman of the Estonian Parliament European Union Affairs Committee, recalled the challenge of natural gas dependence in the past, but now, he said, there is GIPL, interconnection investments between Estonia and Latvia, and intentions for interconnection between Estonia and Finland.

While such efforts are expensive to guarantee security of supply, the Baltic region will have functioning grids, according to him.

Of the “hardware”, i.e. the interconnection, Mr. Palling reported, “We are all well connected with each other and the next step is 'well functioning software', which means that we have common rules [and] all play by the same rules in the same market.”

Still, he conceded that the yearly gas consumption in the Baltics only comprises 5 billion cubic metres (bcm); consumption in Finland is also 5bcm per annum. Connecting the Baltic countries to Finland would be beneficial, he said, something which would influence prices as well. Mr. Palling also said he doesn't see any need for Estonia to invest in an additional LNG terminal in the Baltics, in light of the Balticonnector project, which could offer “new opportunities” for gas.

Regarding natural gas, the Baltic countries love freedom, noted Mr. Jurijs Spiridonovs, Deputy State Secretary of Ministry of Economics of Latvia, who said that if the price stays cheap, Latvia will buy gas from Lithuania's LNG terminal at Klaipeda.

He added that Latvia had signed a memorandum of understanding with Lithuania towards diversifying the market and ensuring free flows of gas, also aiming to utilize underground storage in Latvia.

In connection with a derogation for Latvia in connection with the Third Energy Package (due to what he termed a “very heavy lobby of Gazprom” and Rosneft), Mr. Spiridonovs said that Lithuania's LNG terminal had brought an important question to the table: “Is the LNG terminal in Lithuania a connection between Latvia and Lithuania, or between Latvia and the world, via the LNG terminal? Our understanding is that it's a connection to the world.”

While projects like GIPL are good, he said, he called the Nord Stream-II expansion project "bad." The pluses and minuses of other proposed pipeline projects, such as Eastring or Tesla, should be mapped out, according to him.

He emphasized the competition aspect of natural gas, explaining, “Our industries want to stay competitive; our competitors receive gas two to three times cheaper.”

Still, Mr. Spiridonovs said, “Gas doesn't have a nationality.” Market prices are what's important, he said, adding that joint contracts and joint purchases of gas should be explored.

Everyone must abide by the rules for things to work, he said. “But still, even if we all play fair without any hidden tricks, and if the price of LNG is still higher than Russian gas, then we'll be buying Russian gas, and we don't have to be afraid of that, because the intention of our policy is to get the lowest price and the possibility of choice, free choice."

-Drew Leifheit